Channel Metrics: Consumer Distribution Trends in UK Financial Services - Overview Report
Finaccord, February 2010, Pages: 350
The Channel Metrics series is the most detailed and up-to-date guide to distribution trends in consumer financial services in the UK available on a published basis. It covers 28 separate retail financial products and services, giving it a unique level of detail and information on products that are ignored elsewhere.
It analyses: how consumers acquire these products and services - e.g. online, telephone, post or in person; from whom they acquire them - e.g. direct from the provider, through intermediaries or affinity schemes; and how often they acquire them - i.e. how many consumers acquired a product in the last year, either for the first time or by switching provider instead of renewing or carrying on with an existing product. Findings from this survey are compared with those from 2005 and 2007 to show trends over time.
Each of the 28 products is covered by its own briefing, while an overview report features them all plus additional, comparative analysis of distribution trends. Overall, the Channel Metrics series offers detailed and unique insights into trends in usage of distribution interfaces and channels across 28 distinct financial products and services - with a dedicated briefing having been produced for each - as follows: Car and home - motor insurance, breakdown recovery insurance, extended warranties (for cars), household insurance, home emergency insurance; life and health - life insurance, critical illness insurance, private medical insurance, dental insurance, health / hospital cash plans, personal accident insurance; banking products and associated insurance - mortgages, mortgage payment protection insurance, personal loans, loan payment protection insurance, car finance contracts, credit cards, prepaid cards, travel money; niche insurance - annual travel insurance, single trip travel insurance, pet insurance, mobile telephone insurance, extended warranties (for electronic appliances); savings and investments - interest-bearing savings deposits, cash ISAs, Child Trust Funds, personal / stakeholder pensions.
Key questions addressed by the research include the following.
- How has the credit crisis affected sales and switching?
- Has it hurt some channels more than others?
- What is the ‘brand stretch’ of commercial partners?
- Which products can a supermarket sell?
- Can automotive associations such as the AA and RAC stretch from breakdown recovery to home emergency insurance?
- Does the Post Office brand and branch ‘footprint’ work for all products?
- Is the advance of online aggregators from general insurance into banking succeeding?
- Is customer loyalty increasing or decreasing?
- Is there a ‘ceiling’ to switching rates?
- What financial products are still sold face-to-face, and is this on the decline across the board?
- What is the impact of packaged bank accounts on the distribution of products bundled with them?
- What are the distribution trends for rarely researched products such as car finance contracts, Child Trust Funds, dental insurance, extended warranties, home emergency insurance and prepaid cards?
Channel Metrics: Consumer Distribution Trends in UK Financial Services is based on the results of an online survey of c. 2,500 consumers arranged by Tpoll during November and December 2009.
Who can use the research?
1. Banks, building societies and credit card issuers: assess what volume of sales you should make as a direct provider and as an intermediary, to see which products you should seek to promote and through which interface;
2. Insurance companies: understand trends across the five distribution interfaces, to see which products are becoming ‘Internet only’ and which can be distributed by other means;
3. All financial providers: evaluate which types of distribution partner are the most viable for your product range, and how this is changing;
4. Affinity and commercial partners: for organisations ranging from automotive associations to trade unions and from catalogue retailers to supermarkets, this research will show you which products consumers are most - and least - likely to buy from you;
5. Management consultancies: are you helping a financial services company or an affinity/commercial partner with its distribution strategy? Understand channel metrics across a broad range of financial services, saving time and effort on researching the subject yourself
0.0 EXECUTIVE SUMMARY
Research background and structure
Four of the financial products investigated are held by a majority of respondents
High volumes of sales each year are driven by high levels of switching…
… although switching rates have fallen for lending products amid the credit crisis
Face-to-face distribution remains important for banking products and related insurance…
… while the Internet is still increasing its share of motor and household insurance
Though inbound telephone sales are in decline, outbound telephone sales are increasing their
share
Postal sales have dropped substantially - have they reached the bottom?
Aggregators continue to grow general insurance sales, but have not broken through for banking
Non-financial commercial partners have grown their share of sales, driven by specific products…
… but not-for-profit affinity partners have had little impact outside trade associations and unions
Worksite distribution is strong for pensions and health-related insurance
Banks and building societies have lost a significant share of sales both as direct providers…
… and as distributors of other products, outside packaged accounts
1.0 INTRODUCTION
Research rationale
A number of motivating factors underpin the Channel Metrics report and series of briefings
Updating the results from the 2005 and 2007 surveys
Analysis of consumers making an active distribution choice
Analysis of consumers purchasing or taking out financial services in prior years
Analysis of distribution interfaces
Analysis of specific distribution channels
Expanding upon the results from the 2005 and 2007 surveys
Channel Metrics briefings
Other UK consumer research publications
UK affinity and partnership marketing research publications
UK small business financial services research publications
2.0 CHANNEL COMPARISONS
Introduction
Overall customer take-up rates, 2009
Four products are held by more than half of all respondents
Available customer base, 2009
The largest markets are driven by high levels of switching, not by new customers…
… except for products with specific characteristics or high growth rates
Trends in switching behaviour, 2005, 2007 and 2009
Switching rates have fallen for lending products when compared to insurance and savings
The credit crisis has reduced switching because lenders have ceased to chase new business
… but given the chance, consumers are still becoming less loyal
Distribution interfaces - 2009, 2007, 2005 and all previous years compared
Overview
Internet and outbound telephone sales are the two growing distribution interfaces
Face-to-face environment
Six products are taken out face-to-face by more than half of all customers
Face-to-face distribution is becoming irrelevant for core general insurance products
Internet
Major insurance products and cards are taken out online by most consumers
Personal accident and private medical insurance distribution go against this trend
Inbound telephone
Inbound telephone sales have a growing role in specific niches
Outbound telephone
Personal accident insurance is distributed by outbound calling ahead of other interfaces
Outbound telephones sales are increasing their share of sales for 19 out of 28 products
Post
Will postal sales grow their share of sales in the future?
Distribution channels - 2009, 2007, 2005 and all previous years compared
Overview
Distribution has shifted to online aggregators and non-financial commercial partners…
… squeezing commission income for banks and building societies amid the credit crisis
Direct sales
Savings products are dominated by the direct channel, but this has weakened a little…
… while direct providers are successfully fighting back for cards and travel products
Advisers, brokers and aggregators
Financial advisers, and loan, mortgage and insurance brokers
Loan and mortgage brokers have increased their share of a shrinking market…
... while financial advisers have lost ground for core life and pensions products…
... and general insurance brokers’ share of sales may have bottomed out
Online aggregators
Aggregators’ strength in core general insurance products has not extended to banking
Not-for-profit affinity groups
Automotive clubs
Car clubs play a limited role even in automotive-related financial services
Charities
Credit card sales by charities lag behind the frequency with which they offer them
Educational institutions
Growth in this channel comes from a very low point, and needs time to consolidate a customer base
Professional and trade associations
Pensions and health-related insurance are the leading products for this channel
Trade unions
Although active as affinity partners in many areas, the influence of trade unions is limited
Financial partners
Banks and building societies (acting as intermediaries)
The credit crisis has reduced the share of business held by banks and building societies
Packaged accounts are responsible for their high share of sales in mobile telephone insurance
Credit card companies (acting as intermediaries)
Niche insurance products may offer a better opportunity than mainstream but commoditized lines
Insurance companies (acting as intermediaries)
Insurers up-sell from their core policies rather than cross-sell unrelated financial products
Non-financial commercial partners
Automotive associations
The brand strength of automotive associations has not extended to other financial services
Car dealers and manufacturers
Car finance contracts have been popular through this channel as other lenders have weakened
… but three major car manufacturers have discontinued their co-branded credit cards
Catalogue and other retailers
The share of new customers of catalogue and other retailers is higher for prepaid cards than for credit cards
Estate agents
Mortgages are the key product for estate agents, supplemented by home insurance
Football and other sports clubs
A wide range of financial products are offered by clubs, but uptake of them is low
Loyalty schemes
Pet, accident and health insurance are the strongest areas for loyalty schemes
Magazine, newspaper and other media entities
A wide range of products are on offer, although only two have a significant share of sales
The Post Office
Travel-related products are the main areas of distribution strength of the Post Office
Supermarkets
An increased emphasis on financial services has not led to a greater share of sales overall…
… but prepaid cards and travel money are promising areas for development
Utility (electricity, gas and water) companies
Utilities are losing share of sales for home emergency insurance, their only significant product
Sector-specific distribution channels
As distribution spreads across a multitude of channels, specialists are losing their share of sales 1
Travel agents and tour operators have made progress in selling annual travel insurance
The worksite
The worksite channel has increased its share of sales for core products since 2007
Employer funding is more common for pensions than for protection policies
3.0 PRODUCT ANALYSIS
Introduction
Motor insurance
Switching rates and brand new sales - 2009
Switching rates are stable but high for motor insurance
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Growth in online sales is slowing, as this interface reaches saturation point
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Direct sales by insurance companies held their ground between 2007 and 2009
Detailed analysis
Online aggregators have taken market share at the expense of all other major channels
Data tables
Breakdown recovery insurance
Switching rates and brand new sales - 2009
The annual switching rate appears to be increasing for this form of insurance
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
The Internet is continuing to gain ground as a distribution interface
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Direct sales by automotive associations constitute a shrinking market
Detailed analysis
Policies packaged or bundled on a wholesale basis account for a high proportion of this market Data tables
Extended warranties for cars
Switching rates and brand new sales - 2009
The switching market is nearing the same size as the new extended warranty market
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Face-to-face sales remain the most important interface for extended warranties
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Aggregators and brokers are winning market share from non-for-profit affinity groups
Detailed analysis
Car makers and online aggregators are the rising channels for extended warranties for cars
Data tables
Household insurance
Switching rates and brand new sales - 2009
An increase in switching has more than compensated for a drop in sales to new buyers
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
The Internet and outbound telephone sales are in the ascendant
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Financial partners’ gains in household insurance were reversed between 2007 and 2009
Detailed analysis
Online aggregators now hold over a third of sales to switchers and new buyers
Data tables
Home emergency insurance
Switching rates and brand new sales - 2009
The annual switching rate recorded for 2009 is almost identical to that for 2005
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Patterns in interface usage are driven by different home emergency insurance formulae
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Most sales of home emergency insurance occur on an intermediated basis
Detailed analysis
The share of sales of electricity, gas and water companies is clearly under intense pressure
Data tables
Annual travel insurance
Switching rates and brand new sales - 2009
Annual travel insurance is characterized by a high switching rate
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Online customers are more likely to switch policy than those using other interfaces
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Packaging with added value bank accounts is a very significant feature of this market
Detailed analysis
The Post Office is one of the largest specific distributors of annual travel insurance
Data tables
Single trip travel insurance
Switching rates and brand new sales - 2009
Single trip travel insurance is characterized by an extremely high switching rate
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Close to three quarters of single trip travel policies are bought via the Internet…
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
… with online insurance aggregators and brokers accounting for a significant proportion of this
Detailed analysis
Traditional affinity and corporate partners find the going tough in a fragmented market
Data tables
Pet insurance
Switching rates and brand new sales - 2009
The annual switching rate in 2009 remained little changed from 2007
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
The distribution share of postal sales has shrunk consistently over time
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
The distribution share of insurance aggregators and brokers appears to have reached a plateau
Detailed analysis
Distribution systems for pet insurance are becoming increasingly fragmented
Data tables
Mobile telephone insurance
Switching rates and brand new sales - 2009
The annual switching rate recorded for 2009 is similar to that for both 2005 and 2007
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Patterns in interface usage are driven in part by a shift towards wholesale distribution
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Banks, through packaged accounts, and mobile retailers and operators dominate this market
Detailed analysis
Packaged policies are accounting for a progressively higher market share overall
Data tables
Extended warranties for electrical and electronic appliances
Switching rates and brand new sales - 2009
Once bought, very few customers switch their warranty to an alternative provider
Distribution interfaces - 2009, 2007 and all previous buyers compared
Face-to-face sales remain the most important distribution interface in this market
Distribution channels - 2009, 2007 and all previous buyers compared
Overview
Channels other than manufacturers and retailers command only a limited share of this sector
Detailed analysis
Retailers appear to be outperforming manufacturers in this market
Data tables
Life insurance
Switching rates and brand new sales - 2009
Fewer customers switch provider than take out a new life insurance policy
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Face-to-face and inbound telephone sales have declined since 2007
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Distribution has moved from direct sales to a multitude of partners, especially commercial ones
Detailed analysis
Life insurance distribution has fragmented, with no single channel in the ascendant
Data tables
Critical illness insurance
Switching rates and brand new sales - 2009
One consumer in seven holds critical illness insurance
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Distribution has migrated from face-to-face sales to outbound telephone sales
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Affinity and partnership channels have gained share substantially since 2007
Detailed analysis
The complexity of critical illness insurance has limited the growth of aggregation
Data tables
Private medical insurance
Switching rates and brand new sales - 2009
A small increase in the annual switching rate was registered for 2009
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
There is strong evidence for growth in inbound telephone sales of private medical insurance
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
The results suggest that a higher share of sales than ever is being realised through the worksite…
Detailed analysis
… with other specific distribution channels related to employment also apparently faring well
Funding methods for policies acquired through the worksite
In around a half of cases, employers fund the entire cost of private medical cover themselves
Data tables
Dental insurance
Switching rates and brand new sales - 2009
New or switching customers made up over one in five of all customers in 2009
Distribution interfaces - 2009 and all previous buyers compared
Inbound and outbound telephone sales are moving up at the expense of face-to-face transactions
Distribution channels - 2009 and all previous buyers compared
Overview
Sales of dental insurance are split among a fairly broad range of partner types
Detailed analysis
The distribution share of dentists appears to be under pressure from competing channels
Funding methods for policies acquired through the worksite
For worksite-distributed dental insurance, funding is mostly by the employees themselves
Data tables
Health and hospital cash plans
Switching rates and brand new sales - 2009
Annual switching rates are comparatively low for customers with health or hospital cash plans
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Sales split on a comparatively even basis between the five competing distribution interfaces
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Worksite marketing and other partner channels squeeze the distribution share of direct sales
Detailed analysis
Various types of affinity and corporate partner are active as distributors in this market
Funding methods for policies acquired through the worksite
Almost half of customers acquiring these policies through the worksite pay the full cost
themselves
Data tables
Personal accident insurance
Switching rates and brand new sales - 2009
The annual switching rate recorded a minor increase in 2009
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Outbound telephone sales of personal accident insurance are growing strongly
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Excluding the worksite, sales are split quite evenly across the other five generic channels
Detailed analysis
Banks and building societies achieved a significant distribution share across all years surveyed
Data tables
Mortgages
Switching rates and brand new sales - 2009
Both new mortgage lending and remortgaging have fallen sharply relative to 2005 and 2007
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
The use of distribution interfaces by mortgage borrowers shows relatively little variation over time
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Prior to 2009, most mortgages were taken out directly from the ultimate lenders…
Detailed analysis
… although the evidence of more recent years shows a clear shift towards mortgage brokers
Data tables
Mortgage payment protection insurance
Switching rates and brand new sales - 2009
Both switching rates and sales to new customers were lower in 2009 than in 2007
Distribution interfaces - 2009, 2007 and all previous buyers compared
Face-to-face sales maintain their share, while remote sales slowly migrate to the Internet
Distribution channels - 2009, 2007 and all previous buyers compared
Overview
Distribution has become less concentrated, with traditional channels losing market share
Detailed analysis
Direct sales by insurers and online aggregators have made substantial gains in market share
Data tables
Personal loans
Switching rates and brand new sales - 2009
The general availability of personal loans has fallen sharply relative to 2005 and 2007
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Online loan sales lost ground to face-to-face distribution during 2009
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
The distribution of personal loans is largely dominated by two generic channel categories…
Detailed analysis
… albeit a range of affinity and corporate partner channels also have some presence in this
market
Data tables
Loan payment protection insurance
Switching rates and brand new sales - 2009
New sales of loan payment protection insurance have fallen dramatically
Distribution interfaces - 2009, 2007 and all previous buyers compared
The upselling rate for loans to loan payment protection insurance is only slightly higher face-to-face
Distribution channels - 2009, 2007 and all previous buyers compared
Overview
Banks and building societies have lost market share to all other channels
Detailed analysis
Online aggregators now hold over a third of sales to switchers and new buyers
Data tables
Car finance contracts
Switching rates and brand new sales - 2009
New car finance contracts have fallen with the recession
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Though face-to-face sales predominate, a substantial proportion of sales are made remotely
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Traditional distribution channels have increased their share of sales
Detailed analysis
Car dealerships held a majority of this market in 2009
Data tables
Credit cards
Switching rates and brand new sales - 2009
Switching rates have fallen as lenders changed strategy in the recession
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Internet sales have levelled off, while the post is now the least important interface
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Non-financial commercial partners are neck-and-neck with financial partners, for the first time
Detailed analysis
Catalogue and other retailers distributed as many new cards as supermarkets in 2009
Data tables
Prepaid cards
Switching rates and brand new sales - 2009
New customers in 2009 outnumbered those holding a prepaid card taken out before that year
Distribution interfaces - 2009 and all previous years compared
The Internet accounts for a majority of sales, and has grown at the expense of inbound telesales
Distribution channels - 2009 and all previous years compared
Overview
Direct sales accounted for nearly a half of cards acquired by switchers and new buyers in 2009
Detailed analysis
Non-financial commercial partners are much more important distributors than online
aggregators
Data tables
Travel money
Switching rates and brand new sales - 2009
Consumers display limited loyalty to travel money providers
Distribution interfaces in 2009
Face-to-face transactions dominate the distribution of travel money
Distribution channels in 2009
Overview
Switchers and new buyers prefer foreign exchange companies to banks and building societies
Detailed analysis
The Post Office is the single most important specific channel for travel money
Data tables
Interest-bearing savings deposits
Switching rates and brand new sales - 2009
Nearly a third of consumers with this product opened a savings account in 2009
Distribution interfaces - 2009, 2007 and all previous buyers compared
Banks and building societies have successfully pushed savings accounts away from the branch
Distribution channels - 2009, 2007 and all previous buyers compared
Overview
Direct sales continue to be the most important channel for savings accounts
Detailed analysis
Financial advisers are holding their own against online aggregators
Data tables
Cash ISAs
Switching rates and brand new sales - 2009
Six out of ten customers who took out a new cash ISA in 2009 already held another cash ISA
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Online cash ISA sales are growing, but face-to-face distribution remains dominant
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Direct sales held their market share in 2009, after losing ground between 2005 and 2007
Detailed analysis
Financial advisers directed customers to cash ISAs in 2009
Data tables
Child Trust Funds
Switching rates and brand new sales - 2009
Six out of ten customers who took out a new fund in 2009 already held another Child Trust Fund
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Child Trust Fund sales shifted from the post to face-to-face distribution between 2007 and 2009
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Two thirds of Child Trust Funds are sold directly by a variety of financial companies
Detailed analysis
The Post Office has a larger market share for Child Trust Funds than for simpler savings
products
Data tables
Personal and stakeholder pensions
Switching rates and brand new sales - 2009
More than a quarter of respondents have a personal or stakeholder pension
Distribution interfaces - 2009, 2007, 2005 and all previous buyers compared
Face-to-face distribution no longer accounts for the majority of pension sales
Distribution channels - 2009, 2007, 2005 and all previous buyers compared
Overview
Not-for-profit affinity groups recorded the largest gain in distribution share in 2009
Detailed analysis
Aggregators are gaining share from financial advisers by policies, but perhaps not by premiums
Funding methods for pensions acquired through the worksite
The vast majority of pensions sold via the worksite are funded jointly by employer and
employee
Data tables
4.0 APPENDIX
Research sample and mechanics
Research methodology and structure
Product Samples
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